EU clears AOL German sale to Telecom Italia

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BRUSSELS, Belgium -- European Union regulators cleared on Tuesday an agreement by Telecom Italia SpA to buy AOL's German access business, saying the combined company still would face formidable competition.

Upon closing, Milan-based Telecom Italia will become the second-biggest provider of broadband Internet in Germany with 3.2 million customers, behind Deutsche Telekom AG's T-Online International. Telecom Italia has agreed to pay $856 million in cash to AOL parent Time Warner Inc. to gain a firm foothold in the German market.

The European Commission said overlaps between broadband and dial-up Internet access services were limited.

"The combined firm would continue to face a number of strong, effective competitors, notably the incumbent Deutsche Telekom," it said.

The deal will bring to more than 9 million the number of Telecom Italia subscribers in Italy, France and Germany. In Germany, the company operates Hansenet, which it acquired in 2003, and offers broadband under the "Alice" brand.

AOL Germany has 1.1 million broadband users and 1.3 million subscribers who use dial-up or ISDN to access the Internet.

AOL has been trying to shed its legacy access businesses to concentrate on growing its free, ad-supported Web sites. In the United States, it is giving away AOL.com e-mail accounts and software to keep people from defecting to rivals with free offerings. In Europe, it is selling its access operations, though holding on to its portals for the United Kingdom, France and Germany.

The changes are expected to cost 5,000 jobs at AOL, or a quarter of its global work force, although some would be hired by Telecom Italia and other buyers.

Under the deal, AOL will provide content and ads for its current users as well as Telecom Italia's existing customers in Germany.

Germany's broadband market is one of the largest in Europe, with more than 12 million subscribers as of the end of June. The number of users is expected to grow by 10 million through 2009 as faster access is introduced in the country of more than 82 million.

Time Warner has already closed on a deal with Neuf Cegetel for the French telecommunications network operator to buy AOL's French access business for about $365 million in cash.

Mobile phone retailer Carphone Warehouse Group PLC has agreed to buy AOL's U.K. access business for $688 million in cash.

The U.K. sale is slated to close Dec. 29, while the German sale is expected early next year, according to AOL.

Shares in Time Warner dropped 1 cent to $20.20 in morning trading Tuesday on the New York Stock Exchange.